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Chevron-led Kazakh crude producer 'exploring' export options amid Russian port disruption

Highlights

Both Kazakhstan's top producers looking at alternative routes

Novorossiisk disruption feeding into Russia supply tensions

Uncertainty comes as TCO completing $45 billion expansion

The operator of Kazakhstan's highest producing crude field, the Chevron-led Tengizchevroil (TCO) consortium, is "exploring potential options" amid geopolitical tensions and technical problems at the Russian Black Sea port that loads the Kazakh crude, it said April 30.

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In an emailed comment, TCO, in which Chevron is the largest shareholder with a 50% stake, said its "primary focus is on maintaining safe operations" and reiterated it has reduced production at the giant Tengiz field due to reduced loading capacity at the Russian port of Novorossiisk following storm damage in March.

Loadings were fully halted on March 23 following the storm damage to facilities and subsequently only partially resumed, with just one of the three 'single-point mooring' systems permitted to restart.

TCO also alluded, however, to wider concerns about Kazakhstan's heavy reliance on the 1,500 km CPC pipeline across southern Russia and the facilities at Novorossiisk in the context of the invasion of Ukraine and international efforts to punish Russia.

The CPC loading disruption, though attributed to storm damage rather than any direct link to the invasion of Ukraine, put additional stress on markets and helped elevate global oil prices, prompting expressions of concern from the International Energy Agency.

Kazakhstan is not a party to the Ukraine conflict and its oil is not subject to any sanctions, but it has suffered knock-on effects as crude buyers and shippers shun Russian ports such as Novorossiisk.

The CPC pipeline operator has said sanctions are making it difficult to source parts it needs to maintain the loading facilities at Novorossiisk, while the landlocked Central Asian state has only limited alternative routes. The Russian river system is also a significant conduit for bringing oil industry supplies into the Caspian.

For TCO, the uncertainty comes at a critical time as it works to complete a $45 billion expansion project intended to lift Tengiz output to 850,000 b/d. With CPC loadings in excess of 1.5 million b/d in February, Tengiz is already the largest contributor, with capacity in excess of 600,000 b/d.

In its latest comment, TCO said: "As global crude oil markets continue to encounter challenges arising from geopolitics, TCO's primary focus is on maintaining safe operations, and we are exploring potential options in the event that these are needed." It declined to comment further on "specific details related to possible future business and commercial plans."

Kazakhstan's second-highest producing oil field, Kashagan, has also been forced to reduce output, with the international operating consortium saying it too is exploring alternative "routing scenarios" for its crude.

Russian reliance

Kazakh officials are voicing hopes that repairs could progress sufficiently to restore loading to normal levels, potentially as soon as the end of the current week, even as repairs are likely to continue on one of the three loading systems. But the operator of the CPC loading facilities has shied away from any assurances on the matter.

Kazakh Energy Minister Bolat Akchulakov previously said Kazakhstan had the ability to export some 16.5 million mt via other routes on an annual basis, or roughly 360,000 b/d, including via the Caspian Sea through Azerbaijan and via pipelines into China and Russia. However, all come with disadvantages, either in terms of the price the crude can attract or the logistical challenges of shipping crude across the Caspian and reloading it into pipelines.

Meanwhile members of Kazakhstan's political elite have started publicly voicing concern about over-reliance on the CPC route amid reported tensions with Moscow over Kazakhstan's reluctance to back the invasion of Ukraine.

On April 20, the news service of Kazakh President Kassym-Jomart Tokayev said he had discussed the export situation with the head of state oil company KazMunaiGaz, Magzum Mirzagaliyev, saying the head of state "was informed about the imminent completion of repairs to the single-point mooring system, which will enable a resumption of previous levels of Kazakh crude transportation via the CPC pipeline."

CPC Blend was most recently assessed at a discount to Dated Brent close to $9/b on a CIF basis and over $12/b on a FOB basis, S&P Global data showed, however, this compares with a near minus $35/b discount for Russia's Urals loaded on a CIF August basis.